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Egypt THE ROLE OF GOVERNMENT
Muhammad Ali's era saw strong state intervention in the
economy; the subsequent century witnessed a passive state and the
dominance of private foreign and domestic investors. Yet both
failed to achieve economic development or to lift Egypt from
poverty and dependence. The Gamal Abdul Nasser regime (1952-70)
inherited an underdeveloped economy with great inequalities. A few
rich foreigners and nationals controlled the country's wealth, from
large landed estates to manufacturing and commercial firms, while
the bulk of the population was poor and disenfranchised. The new
regime, borrowing from the debates and programs put forward by
various political parties and interests during the 1930s and World
War II, undertook the task of economic restructuring
(see Nasser and Arab Socialism
, ch. 1).
The process transformed the state into the dominant economic
agent in the country and culminated in a new economic system
labeled "Arab socialism" in the National Charter issued in 1962.
The government implemented a land reform program that aimed at
eliminating what it referred to as a "feudalist" stratification of
landholding and instead distributing land to small peasants and the
landless. By 1964 a huge public sector had evolved, including all
utilities, communications, and finance as well as large
manufacturing enterprises, transportation, wholesale and foreign
trade, some big retail stores, and construction firms. By 1973 the
ratio of public to private in the composition of GDP was 58 to 42
in contrast to 15 to 85 in 1953. The government fixed the exchange
rate of the Egyptian pound, began development planning, and
controlled foreign trade. Nasser nationalized the Suez Canal in
1956 and in the early 1960s nationalized about 300 key enterprises
owned by Egyptian nationals and foreigners. The private sector came
under extensive regulation.
Because of the economic difficulties in the second half of the
1960s, which were exacerbated by the June 1967 War with Israel, the
regime began to reconsider aspects of state controls and its
attitude toward the private sector. A pronounced shift in
orientation, however, awaited Sadat's takeover at the end of 1970.
A combination of economic problems, political considerations,
and his own predilections led Sadat after the October 1973 War, to
declare a new policy he dubbed infitah (opening or open
door). The main ingredients of the policy were to relax existing
government controls over the economy and bureaucratic procedures,
to encourage the private sector, and to stimulate a large inflow of
foreign funds.
The open-door policy succeeded in generating a large inflow of
foreign funds in the form of remittances, foreign grants, and aid,
especially from the United States after the signing of the Camp
David Accords with Israel. The economy also grew at impressive
rates. But the negative side of the policy was that the country was
flooded with imports, and the government was compelled several
times in the 1980s to reimpose import restrictions
(see Imports
;
Balance of Payments and Main Sources of Foreign Exchange
, this
ch.). The income gap between rich and poor widened, and conspicuous
consumption reappeared
(see Urban Society
, ch. 2).
Despite the infitah, the government found itself even
more deeply involved in the economy. Subsidies grew from 1 percent
of GDP in 1970 to 11 percent in 1979. The state's contribution to
fixed investment remained high, at 87 percent in 1977. In the same
year, government employment accounted for 32 percent of the total,
but the increased personnel did little to clear up the bureaucratic
snarls that blocked development. Private domestic and international
investment went primarily to housing and trading companies. Foreign
investment remained meager because of the cumbersome regulations,
the bureaucracy, the political uncertainty, and insufficient
incentives.
Data as of December 1990
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